Tesla Inc. Chairwoman Robyn Denholm told a Delaware judge the electric car maker got good value by agreeing to pay Elon Musk about $55 billion to be its CEO, even though he was splitting time on ventures like building a colony on Mars or selling perfume and flamethrowers.
Musk, the world’s richest person, had the “vision and tenacity” to turn Tesla from a start-up into one of the world’s most-valuable companies, Denholm testified Tuesday during the second day of trial over a lawsuit by a Tesla investor who claims the compensation was excessive.
“My view is that his focus and attention is important,” said Denholm, a Tesla director since 2014. “The time is not as important to me. It’s the results he’s able to drive. I’m not concerned about the amount of time that he spends. He will do whatever he needs to do to achieve a result.”
Tesla investor Richard Tornetta — who owns nine shares of the company — claims the board failed to exercise independence from Musk as it drew up a new pay package in 2018 for its chief executive officer. Tornetta said the board lavished the world’s largest compensation plan on a part-time leader.
Just last month, Musk acquired Twitter Inc. for $44 billion after abandoning a four-month legal fight to get out of the deal. Since taking control of the social-media platform, he’s slashed its workforce, changed policies and been confronted with an advertising slump that prompted him to say bankruptcy was a possibility if the company didn’t start generating more cash.
But Denholm and other Tesla directors have defended the pay agreement despite his other business interests. They claim they weren’t influenced by their ties to Musk and said the payout motivated the mercurial billionaire to bring his A-game to spur Tesla’s growth.
‘I heard something abouto that’
Under cross-examination by Greg Varallo, one of Tornetta’s lawyers, Denholm acknowledged she had no idea how much time Musk spent at Tesla compared with his Space Exploration Technologies Corp., an aeronautical start-up, or The Boring Co., his tunneling operation.
Varallo asked if Denholm had heard Musk was selling perfume and flame-throwers as part of his peripatetic business endeavors. “Yes, I heard something about that” through media reports, the director responded.
She also acknowledged Musk had told her he wanted to use any monies earned through his Tesla payout to help fund his efforts to colonize Mars. The billionaire has publicly said he estimates it would take one million tons of cargo to build a city on the planet at a cost of as much as $10 trillion.
Tornetta’s lawyer also said Denholm financially benefitted from her time on Tesla’s board, racking up stock options valued at about $24 million.
The director said earlier in her testimony she had only a “business relationship” with Musk. “Tesla would not be the company it is today without Mr. Musk leading it,” Denholm said.
Delaware Chancery Judge Kathaleen St. J. McCormick is hearing evidence in the case and will decide whether Musk should be forced to return stock-options awarded under the pay package to Tesla.
Musk to take the stand
Musk, known for his combative testimony, is set to take the stand on Wednesday to defend the pay package.
Musk, the world’s richest person, tweeted this week that he was remaining at Twitter’s San Francisco headquarters around the clock until he fixed the company’s problems.
On Monday and Tuesday, the court got a taste of Musk’s testimony through short clips from his 2021 deposition in the litigation. In one clip, Musk dismissed the idea that the board should have discussed requiring that he spend more time with Tesla.
“That would have been silly,” said Musk.
Musk has a history of combative testimony and often appears disdainful of lawyers who ask probing questions. He has called opposing attorneys “reprehensible,” questioned their happiness and accused them of “extortion.”
Last year, Musk told a lawyer for a shareholder suing him over the 2016 acquisition of SolarCity that he was “a bad human being.”
Musk can also show his charm in court. He apologized from the stand to a British diver who he called “pedo guy” in a tweet and who sued Musk for defamation. The jury in the case found Musk did not defame the diver.
Shareholders generally cannot challenge executive compensation because courts typically defer to the judgment of directors. The Musk case survived a motion to dismiss because it was determined he might be considered a controlling shareholder, which means stricter rules apply.
“There is no case in which a 21.9 percent shareholder who is also the chief executive has received a structured payout plan of this magnitude,” Lawrence Cunningham, a corporate law professor at George Washington University, said of the lack of precedent.
The case is Tornetta v. Musk, 2018-0408, Delaware Chancery Court (Wilmington).
Bloomberg and Reuters contributed to this report.